Tobacco profile

Contents
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Tobacco.industry.profile.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
. 1 .. Description.of.the.industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
. 2 ... Marketing.structure .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ... 3
. 3 ... Market.value.chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
. 4 ... Empowerment.issues.and.transformation.in.the.sector. . . . . . 7
. 5 ... Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
. 6 ... Opportunities.and.strengths. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
. 7 ... Tobacco.producer.organisations/cooperatives .. .. .. .. .. .. .. .. .. .. ... 8
. 8 ... Leaf.merchants/leaf.dealers. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
. 9 ... Cigarette.manufacturers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
.10 ...Pipe.and.snuff.tobacco.manufacturers. . . . . . . . . . . . . . . . . . . 9
.11 ...Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Page iii

notes
•. Gallaher Manufacturers:. is.a.new.tobacco.manufacturing.company.in.South.
Africa.which.is.still.setting.up.its.operations.in.the.country .
•. Swedish Match:. specialises.in.the.manufacture.of.pipe.tobacco.and.snuff .
•. JT International SA:. specialises.in.the.manufacture.of.brands.such.as.Camel.
and.Winston .
•. Phillip Morris SA:. is. another. tobacco. company. that. only. imports. tobacco.
brands. into. SA. such. as. Marlboro,. Marlboro. Lights,. and. Marlboro. Menthol ..
The.company.is.considering.to.venture.into.cigarette.manufacturing.at.a.later.
stage ..
•. African Affiliated Tobacco:. is.manufacturing.for.Gold.Leaf.Tobacco.Corporation.and.mainly.manufactures.tobacco.for.the.export.market.in.the.US
.
•. British American Tobacco SA (Pty) Ltd:. manufactures.ten.cigarette.brands.
such.as.Peter.Stuyvesant,.Rothmans,.Benson.&.Hedges,.Courtleigh,.Dunhill,.
Camel,.Chesterfield,.Princeton,.Royals.and.Craven.A . .
Page iv

sA GoLden
LeAF Ltd
LiMpopo
toBACCo
pro-
Cessors
MLP
ownership:
Market
share
employ-
ment
GAMtoos
toBACCo
CooperA-
tiVe Ltd
MoKopAne
toBACCo
aFRIcaN
aFFILIaTED
Tobacco
ownership:
Market
share
employment
Tobacco INDUSTRY PRoFILE
Page v
toBACCo produCtion
• 10 small scale tobacco growers
• 600 commercial tobacco growers
• Total production: 28 000 – 30 000 tons
• area planted: 13800 hectares
• 46 000 agricultural workers
• 2400 employed in tobacco co-operatives
• 5000 employed in tobacco manufacturing
• 30 000 tons of tobacco produced per year
bRITISH
aMERIcaN
Tobacco Sa
ownership:
Market
share: 92 %
Employees:
2 500
VIRGINIa
LEaF co.
ownership:
Market
share
employ-
ment
WHoLESaLERS
370 wholesalers
SWEDISH
MaTcH
ownership:
Market
share
employ-
ment
TRIbac
ownership:
Market
share
employ-
ment
JaPaNESE
Tobacco INT.
ownership:
Market
share: 2 %
employ-
ment
RETaILERS
65 000 formal
retailers
UNIVERSaL
LEaF Sa
PTY(LTD)
ownership:
Market
share
employment
aLLIaNcE
oNE INT.
ownership:
Market
share
employ-
ment
MaSTERMIND
Tobacco Sa
(PTY) LTD
ownership:
Market
share: 2 %
employment
INFoRMaL
TRaDERS
60 000 players
Tobacco
TRaDERS
ownership:
Market
share
employ-
ment
WoRLD cLaSS
coNNEcTIoN
ownership:
Market
share
employ-
ment
coNSUMERS

Commodity profile
1. desCription oF tHe industrY
The.tobacco.industry.contributes.more.than.R7,5.billion.in.excise.duty.and.VAT.to.the.Government.per.annum
..Private.consumer.spending.on.tobacco.is.approximately.R11,9.billion.
per.annum ..Three.classes.of.tobacco.are.produced.in.South.Africa.–.flue-cured,.air-cured.
tobacco.and.Oriental.tobacco ..Flue-cured.tobacco.is.mainly.used.for.cigarettes.and.aircured.tobacco.is.mainly.used.as.pipe.tobacco,.snuff.and.RYO.(roll.your.own).cigarettes
..
The.contribution.of.the.tobacco.industry.to.the.Gross.Value.of.Agricultural.Production.can.
be.summarised.in.Fig ..1.as.follows:
1.1 production areas
In.South.Africa.tobacco.is.grown.in.five.provinces:.the.Eastern.Cape.in.
the.Gamtoos.Valley.where.85.ha.produce.160.tons.of.air-cured.tobacco,.
the.Western.Cape.in.the.Oudtshoorn.district.where.50.ha.produce.100.
tons.of.air-cured.tobacco,.Limpopo.Province.(Waterberg.district).in.the.
Ellisras.area.where.1.000.ha.produce.3.150.tons.of.air-cured.tobacco,.
the.Marble.Hall.and.Groblersdal.area.produces.7.300.tons.of.flue-cured.
tobacco..on.3.300.ha,.the.Vaalwater.area.produces.7.800.tons.of.fluecured.tobacco.on.2.400.ha
.
Page 1
FIG. 1. Tobacco – gross value of production
Source: Directorate of Agricultural Statistics – Department of Agriculture

In.the.Mpumalanga.Province,.2.500.ha.produce.7.000.tons.of.flue-cured.
tobacco.while.the.North-West.Province.produces.5.500.tons.of.flue-cured.
tobacco.on.2.200.ha ..
1.2 production
The. total. production. of. tobacco. in. South. Africa. is. estimated. to. be. between. 28. 000. to.
30.000.tons,.comprising.26.000.tons.of.flue-cured.tobacco.and.3.500.tons.of.air-cured.
tobacco ..There.are.630.tobacco.growers.in.South.Africa.operating.on.approximately.12.
000.ha.of.land ..On.average.the.Eastern.Cape.Province.produces.160.tons,.the.Western.
Cape.100.tons,.Limpopo.Province.18.250.tons,.Mpumalanga.Province.7.000.tons.while.
the.North.West.Province.produces.5.500.tons.of.tobacco.per.annum ..Tobacco.production.
in.the.provinces.of.South.Africa.is.depicted.in.Fig ..2 ...
Mpumalanga
23.%
The.trends.in.tobacco.production.over.the.past.ten.years.are.as.follows:
TABLe 1. Tobacco: area planted and total production
Year 1994
/95
area
planted
(1000ha)
Total
production
(1000tons)
North.West
18.%
Figure 2: Tobacco Production in South Africa
Source: Tobacco SA/TISA
1995
/96
1996
/97
1997
/98
1998
/99
Page 2
Eastern.and.Western.Cape
1.%
1999
/00
2000
/01
2001
/02
2002
/03
Limpopo
58.%
2003
/04
14 14 15 15 14 16 15 15 14 12
20,6 21,5 26,5 31,6 30,1 29,7 35,0 33,0 37,4 29,0
Source: Directorate of Agricultural Statistics-Department of Agriculture
In.the.SADC.region.tobacco.is.also.produced.in.countries.such.as.Zim-
.
babwe,.Uganda,.Kenya,.Tanzania.and.Mozambique ..Zimbabwe.has.250

tobacco.farmers.producing.6.000.tons.of.tobacco,.Uganda.has.100.000.farmers.
producing.35.000.tons.of.tobacco,.Kenya.produces.2000.tons.of.tobacco,.Tanzania’s.
71.000.farmers.produce.49.000.tons.while.Mozambique’s.100.000.farmers.produce.28.
000.tons.of.tobacco .
FIG. 3. Tobacco production in the SADC region
Source: Tobacco SA
1.3 employment
The. primary. tobacco. industry. in. South. Africa. employs. 46. 000. agricultural.
workers,. with. 2. 400. employed. in. tobacco. cooperatives,. while. the. tobacco.
manufacturing.industry.employs.5.000 ..In.total.there.are.approximately.100.
000.people.who.are.dependent.on.the.tobacco.industry ..
2. MArKetinG struCture
2.1 domestic market
Approximately.40.to.45.%.of.flue-cured.tobacco.and.60.to.70.%.of.aircured.
tobacco. is. used. for. local. consumption .. Finished. tobacco. products.are.distributed.through.364.wholesalers,.55.000.retailers.and.approximately.60.000.small.players.in.the.informal.market.(street.vendors,.
spaza.shops,.etc .) ..The.average.producer.prices.for.tobacco.for.the.past.
ten. years. as. depicted. in. Fig .. 4. reached. a. peak. in. 1997/98. and. then.
declined.sharply.as.a.result.of.the.introduction.of.the.Tobacco.Control.
Act.while.a.slightly.smaller.number.of.hectares.were.used.for.tobacco.
production.during.the.2003/2004.season .
Page 3

FIG. 4. Tobacco production and average producer prices
Source: Directorate of Agricultural Statistics – Department of Agriculture
2.2 exports and imports
South.Africa.exports.approximately.16.000.tons.of.leaf.tobacco.per.annum ..
Flue-cured.tobacco.that.is.not.used.for.local.consumption.is.exported.mainly.
to.Europe,.the.Middle.East,.the.Far.East.and.other.African.countries ..Tobacco.qualifies.for.duty.free.access.to.the.USA.under.the.Africa.Growth.
and.Opportunities.Act ..The.volumes.and.the.value.of.exports.of.leaf.tobacco.are.shown.in.Fig
..5 ..
On.average.South.Africa.also.imports.approximately.17.000.tons.of.leaf.
tobacco.per.annum ..The.volumes.and.the.value.of.the.imports.of.leaf.tobacco.are.shown.in.Fig
..6 ..Imports.have.increased.above.exports.since.
2002. because. the. tobacco. manufacturers. are. importing. more. leaf. tobacco.and.some.tobacco.manufacturers.have.started.importing.finished.
tobacco.products ..
The.Directorate.Marketing.issues.rebate.permits.under.the.Market.Access.Rebate.Scheme.to.importers.of.unmanufactured.tobacco.for.a.total.
of.16.773.tons.per.annum ..The.full.duty.is.15.%.or.R8,60.c/kg.less.85.%.
if.the.imports.are.from.outside.the.SADC.region ..
Page 4

FIG. 5. Tobacco exports
Source: Directorate Agricultural Statistics – Department of Agriculture
Page 5
FIG. 6. Tobacco imports
Source: Directorate Agricultural Statistics – Department of Agriculture

Page 6
2.3 processing
In. South. Africa. processing. facilities. belong.
to. tobacco. farmers. in. the. form. of. companies.
or.cooperatives ..Farmers.are.paid.for.their.tobacco.at.the.
point.of.delivery.according.to.the.valuation.being.placed.on.every.
bale.of.tobacco ..The.tobacco.is.then.processed.and.packed.according.to.the.specifications.of.the.tobacco.manufacturers
..Leaf.dealers.mostly.
buy.tobacco.from.grower.cooperatives.or.companies.although.some.air-cured.
tobacco.is.bought.directly.from.contracted.growers ..Two.methods.of.leaf.drying.
are.used—artificially.dried.tobacco.and.tobacco.dried.under.natural.weather.conditions
..After.the.drying.process.the.leaf.is.graded.according.to.colour,.size.and.texture ..
Flue-cured.tobacco.is.used.mainly.for.cigarette.manufacturing.while.air-cured.tobacco.is.
mainly.used.as.pipe.tobacco,.snuff.and.RYO.cigarettes .
New development
In.May.of.2005.British.American.tobacco.launched.a.new.product.category.called.smokeless.Snus.(pronounced.s-noo-s).in.South.Africa.and.Sweden.simultaneously
..Snus.is.a.
less. harmful .. Smokeless. tobacco. is. fully. imported. from. Sweden. and. currently. on. trial.
at.241.tobacco.outlets.in.Gauteng ..It.consists.of.small.sachets.of.moist.tobacco,.which.
resemble.a.tea.bag.and.are.about.the.size.of.a.thumbnail ..The.sachet.is.placed.under.
the.upper.lip,.it.is.not.lit.or.chewed.but.held.in.the.mouth,.typically.for.30.minutes.before.
being.discarded ..
3. MArKet VALue CHAin
toBACCo
produCtion
Grower cooperatives
Informal traiders
FIG. 7. Market value chain for the tobacco industry
Leaf dealers
Tobacco products
manufacturers
Wholesalers
Retailers
consumers

4. eMpoWerMent issues And trAnsForMAtion
in tHe seCtor
The.Hereford.Tobacco.Development.Project.initiated.in.2001.on.the.Hereford.smallholding.near.Groblersdal.is.aimed.at.the.social.and.economic.empowerment.of.small.
farmers.to.become.independent.tobacco.farmers ..This.project.is.led.by.Tobacco.
SA.with.support.from.British.American.Tobacco.(donating.funds).and.SA.Golden.
Leaf.(providing.management.and.extension.expertise) ..
5. CHALLenGes
The.growth.of.the.illicit.trade.in.tobacco.products.has.increased.from.non-existent.a.
decade.ago.to.the.current.15.%.of.the.entire.industry ..The.alarming.growth.in.
illegal.trade.in.tobacco.products.in.South.Africa.is.estimated.to.be.between.
1.to.2.billion.sticks.per.annum ..Various.factors.that.include.high.excise.duties,.drought.and.the.stronger.rand,.also.pose.serious.challenges.to.the.
industry’s.competitiveness ..Excise.duties.have.increased.by.470.%.over.
the.past.ten.years.and.have.resulted.in.the.decline.of.the.legal.market.by.
a.third.and.a.rapid.growth.in.the.illegal.market ..The.illegal.market.could.be.
as.high.as.15.%.countrywide.and.is.still.growing .
6. opportunities And strenGtHs
In.the.tobacco.industry.there.are.good.relations.between.the.growers.
and.the.manufacturers.and/or.the.leaf.dealers .There.is.a.potential.to.increase.crop.size.and.improve.the.quality
..The.grower.organisations.are.
technically.well.advanced.and.most.of.the.major.South.African.tobacco.
manufacturers.are.world.players .
Page 7

7. toBACCo produCer
orGAnisAtions/
CooperAtiVes
7.1 sA Golden Leaf Ltd
P .O ..Box.1158.
NELSPRUIT.
1200
7.2 Gamtoos tobacco
Cooperative
P .O ..Box.5.
PATENSIE.
6335
7.3 Limpopo tobacco
processors
P .O ..Box.69.
RUSTENBURG.
0030
7.4 Mokopane tobacco
P .O ..Box.4819.
MOKOPANE.
0600
8. LeAF MerCHAnts/LeAF
deALers
8.1 universal Leaf
south Africa
P .O ..Box.7509.
RUSTENBURG.
0300
8.2 tobacco traders
P .O ..Box.487.
CONSTANTIA.
7848
8.3 Alliance one
international
(Formerly dimon intl)
P .O ..Box.787.
NORTHLANDS.
2116
8.4 tribac
P .O ..Box.652799.
BENMORE.
2010
8.5 Virginia Leaf Company
(pty) Ltd
P .O ..Box.412796.
HYDE.PARK.
2024
9. CiGArette
MAnuFACturers
9.1 Africa Affiliated Tobacco
(Manufacturing for Gold
Leaf tobacco
Corporation)
Cnr.Addlesen.&.Bert.Kipling.Str.
Wilsonia.
EAST.LONDON.
5247
Page 8

9.2 British American
tobacco south Africa
(pty) Ltd
P .O ..Box.631.
CAPE.TOWN.
8000
Head Office:.Stellenbosch ..
Factories:.. Heidelberg,.Gauteng..
. and.Paarl .
9.3 Japanese tobacco
international
south Africa..
Private.Bag.X39.
RIVONIA.
2128
9.4 Mastermind tobacco sA
(pty) Ltd
P .O ..Box.7185.
EAST.LONDON.
5200
9.5 phillip Morris
south Africa
MILNERTON,.Cape.Town
Currently.importing.brands:.Marlboro,.
Marlboro.Lights,.Marlboro.Menthol
Considering.manufacturing.at.a.later.
stage .
9.6 Gallaher
(still setting up)
JOHANNESBURG
Page 9
10. pipe And snuFF
toBACCo
MAnuFACturers
10.1 swedish Match sa:
Leornard dingler
(pipe and snuff)
P .O ..Box.215.
BENONI.
1500
10.2 swedish Match sA:
Best Blend (pipe)
P .O ..Box.63.
RUSTENBURG.
0300
10.3 MLp distributors
(Medicated/treated
snuff)
P .O ..Box.9975.
JOHANNESBURG.
2000
10.4 Van erkoms tabakke
(edms) Bpk
(pipe and snuff)
P .O ..Box.1889.
MOKOPANE.
0600
10.5 World Class Connection
trading (pty) Ltd
(roll tobacco)
P .O ..Box.46.
OUDTSHOORN.
6620

10.6 KtC Hs spies & Broers
(roll tobacco)
P .O ..Box.46.
OUDTSHOORN.
6620
11. ACKnoWLedGeMents
11.1 tobacco sA/tobacco
institute of south Africa
(tisA)
P .O ..Box.7648.
ROGGEBAAI.
8012
Tel:.. (021).421.0011.
Fax:.. (021).421.0013.
E-mail:. tisa@tobaccosa .co .za.
Web:. www .tobaccosa .co .za.
11.2 British American
tobacco south Africa
(BAtsA)
P .O ..Box.631.
Stellenbosch.
7599
Tel:.. (021).888.3973.
Fax:.. (021).888.3423.
Web:. www .batsa .co .za
11.3 directorate Agricultural
statistics – department
of Agriculture
Address.??
Page 10